3.7.2 (1) Efficiency Ratios Flashcards
1
Q
Efficiency ratios
A
Financial efficiency ratios analyse how effectively a business is managing its assets
2
Q
What are the three most commonly used efficiency ratios?
A
Inventory turnover
Payable days
Receivable days
3
Q
Inventory turnover
A
Measures how often each year a business sells and replaces its inventory
Equation: cost of sales/inventories
4
Q
Payable days
A
Measures the average length of time taken by a business to pay amounts it owes
Equation: (trade payables/cost of sales) x 365
5
Q
Receivable days
A
Measures the average length of time taken by a customer to pay amounts owed
Equation: (trade receivables/revenue) x 365
